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Thailand Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

While the Thai parliament refrained from immediately declaring the crown prince as the new king following the death of King Bhumibol Adulyadej, we continue to expect a relatively smooth royal transition over the coming months as political and popular support for the crown prince solidifies. Thai financial assets have rallied following their initial sell-off and should continue to bounce, even as the economy slows sharply amid the national mourning. The Thai economy is likely to take a near-term hit as the country mourns the loss of the king and we have downgraded our forecast for 2016 real GDP growth to 2.7% from 3.0% previously, which implies negligible growth in H216.

Over the medium term, the Thai economy is likely to continue to underperform its peers despite strengthening balance sheets as private investment remains sluggish. We continue to see gradual Thai baht strength as growth and inflation dynamics will remain favourable in comparison to the US. While the royal succession poses risks, we maintain that a smooth transition is likely, which should allow calm to return to Thailand's financial markets over the medium term. Despite both headline and core CPI remaining below the Bank of Thailand's target range and downside risks to growth stemming from the death of King Bhumibol, we expect rates to remain on hold until 2018 as the oil price recovery puts upward pressure on headline CPI.

That said, risks are weighted to the downside given the ongoing fall in money supply and credit growth, which should keep core CPI muted over the coming quarters. The rise in manufacturing exports as a share of GDP in spite of the relative decline in overall manufacturing output suggests that the economy has become increasingly external-focussed, which could prove problematic given the ongoing slowdown in the Chinese economy. We forecast Thailand's current account surplus to shrink from a substantial 12.0% of GDP in 2016 to 8.5% of GDP in 2017 and 8.0% in 2018. Thailand will continue to face challenges in financing projects and acquiring land as it pursues THB1.4trn (USD40bn) worth of transport infrastructure projects over the next six years. Although the government may be able to unilaterally push through key projects like the joint China-Thailand railway, investors will be wary of unresolved issues that could bog down future projects. Major Forecast Changes We have downgraded our 2016 real GDP growth forecast to 2.7%, from 3.0% owing to the downside risks posed by the king's death.

In 2017, we should see a relatively strong recovery as the government will not want to see the economy take a prolonged dip given the role that fostering prosperity plays in their overall credibility, but we have knocked our growth forecast down to 3.0% from 3.5% previously.

Table Of Contents

Thailand Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Testing Times For Current Economic Model 8
The Thai economy is likely to take a near-term hit as the country mourns the loss of the king and we have downgraded 2016 real GDP
growth to 2 7% from 3 0% previously, which implies negligible growth in H216 Over the medium term, the Thai economy is likely to
continue to underperform its peers despite strengthening balance sheets as private investment remains sluggish
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook11
Funding, Land Acquisition Remain Stumbling Blocks11
Thailand will continue to face challenges in financing projects and acquiring land as it pursues THB1 4trn (USD40bn) worth of transport
infrastructure projects over the next six years Although the government may be able to unilaterally push through key projects like the
joint China-Thailand railway, investors will be wary of unresolved issues that could bog down future projects
TABLE: TOP 10 PRE-TENDER TRANSPORT PROJECTS BY VALUE 12
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES13
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 13
External Trade And Investment Outlook 14
Manufacturing Exports Facing Headwinds 14
The rise in manufacturing exports as a share of GDP in spite of the relative decline in overall manufacturing output suggests that
economy has become increasingly external-focused, which could prove problematic given the ongoing slowdown in the Chinese
economy We forecast Thailand's current account surplus to shrink from a substantial 11 5% of GDP in 2016 to 7 8% of GDP in 2017
and 7 1% in 2018
Outlook On External Position 15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: MAIN EXPORT AND IMPORT PARTNERS 16
TABLE: MAIN EXPORTS AND IMPORTS 16
Monetary Policy 16
Rates To Remain On Hold But Risks Weighted To The Downside 16
Despite both headline and core CPI remaining below the Bank of Thailand's target range and downside risks to growth stemming from
the death of King Bhumibol on October 13, we expect rates to remain on hold until 2018 as the oil price recovery puts upward pressure
on headline CPI That said, risks are weighted to the downside given the ongoing fall in money supply and credit growth, which should
keep core CPI muted over the coming quarters
Monetary Policy Framework 18
TABLE: MONETARY POLICY FORECASTS 18
Contents
Currency Forecast 19
THB: Gradual Strength Despite Royal Succession Risks19
We continue to see gradual Thai baht strength as growth and inflation dynamics will remain favourable in comparison to the US While
the royal succession poses risks, we maintain that a smooth transition is likely, which should allow calm to return to Thailand's financial
markets over the medium term
TABLE: CURRENCY FORECAST 19
Chapter 2: 10-Year Forecast 21
The Thai Economy To 2025 21
Political Uncertainty The Main Growth Obstacle 21
Ongoing political uncertainty, deteriorating demographic trends and a lack of reform momentum are likely to undermine Thailand's longterm
economic growth trajectory As such, we forecast real GDP growth to average 3 6% annually over the period from 2016 to 2025,
making Thailand a regional growth laggard over the coming years
TABLE: LONG-TERM MACROECONOMIC FORECASTS 21
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index25
Domestic Politics26
Crown Prince Likely To Succeed But Risks Remain 26
While the Thai parliament refrained from immediately declaring the crown prince as the new king following the death of King Bhumibol
Adulyadej, we continue to expect a relatively smooth royal transition over the coming months as political and popular support for the
crown prince solidifies Thai financial assets have rallied following their initial sell-off and should continue to bounce, even as the
economy slows sharply amid the national mourning
TABLE: POLITICAL OVERVIEW 26
Long-Term Political Outlook 27
Uncertainty Ahead Despite Tight Military Grip 27
Thailand will continue to experience political uncertainty over the coming decade, with the death of King Bhumibol in October 2016
posing a risk to the existing political order despite the increasingly tight grip of the military government The most likely scenario is a
dysfunctional democracy with unstable governments, with the military playing a strong role At worst, rising political violence could push
the country towards civil conflict, but the probability has declined since the 2014 coup
Chapter 4: Operational Risk 31
Operational Risk 31
TABLE: OPERATIONAL RISK SCORES 31
Business Crime 32
TABLE: BUSINESS RESPONSE TO RISK 33
Government Intervention 35
TABLE: BUSINESS TAXES 36
TABLE: PERSONAL INCOME TAX 36
Chapter 5: BMI Global Macro Outlook39
Global Macro Outlook 39
Austerity Has Peaked, But Populism Is Not Yet Policy 39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 41
TABLE: THAILAND - MACROECONOMIC DATA and FORECASTS 43

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